Quirky Si Newhouse Becomes a Media Power : Publishing: The owner of the New Yorker, Vogue and Random House builds his empire through experimentation. In the process some heads roll.

It was early 1984, and a new magazine called Vanity Fair was suffering a birth agony of dwindling advertising, anemic circulation and regular editorial makeovers.

On the fifth floor of his office in midtown Manhattan, ad director Douglas Johnston had finally admitted to himself that he didn’t have a strategy for saving the magazine. And he was hoping--fervently--that nine floors above him, company Chairman Samuel I. (Si) Newhouse Jr. did.

Johnston put the question to Jonathan Newhouse, the cousin of Si Newhouse, who was then Vanity Fair’s business manager.

“Is there a plan?” Johnston asked.

“There is no plan,” Newhouse said flatly.

There has been no grand plan at Advance Publications, the nation’s largest private media company, since Si Newhouse and his brother Donald took control after the death of their father 10 years ago. Rather, there has been constant experimentation, change and growth. Over the decade, this formula has made Si Newhouse, the most reluctant of public men, one of the most powerful and feared figures in the publishing world.

With a famously quirky style, the shy Newhouse has expanded the five Conde Nast women’s magazines into a 15-publication chain that includes Parade, the New Yorker, Vogue, Glamour and Vanity Fair, which has grown to prosperity after its early travail. Random House, bought for $65 million in 1980, has increased sales 20-fold and is considered by some to be the nation’s most important book publisher.

The privately owned Advance realm also includes the 31 newspapers, broadcast and cable-TV operations overseen by Donald Newhouse. In all, the Newhouse properties are worth an estimated $8 billion to $10 billion, making Si and Donald the fifth-richest men in the nation, according to Forbes magazine.

The magazines and book operations have given the chain its visibility, through the glamour that surrounds some of them and through the publicity they receive when Newhouse orders a change of command or direction. And while turnover is notoriously high in the publishing world, Newhouse has sent heads rolling with a regularity that has made him the Alice’s Queen of Hearts of the trade.

Earlier this month, Newhouse surprised the book world by announcing the departure of Robert Bernstein, the literary mandarin who had run Random House for 25 years. In the past three years, Newhouse has installed three editors at HG magazine and three at Self, and he ousted Grace Mirabella, who had presided over Vogue for 17 years. In 1986, provoking a very public protest from the staff, he fired William Shawn, editor and guiding intelligence of the New Yorker for a generation.

“Change is change,” said Newhouse, unapologetic. “It doesn’t happen slowly.”

Newhouse’s habits suggest more a man trying to build his own fortune than one who inherited wealth from his father, as he did. He arrives at his spare office at Conde Nast’s headquarters about 4:30 a.m. and meets with top managers as early as 5:30. He may hold the record for the shortest New York business lunches, often finishing a meeting with a subordinate at the Four Seasons restaurant within 45 minutes.

Newhouse, who finished three years of college at Syracuse University, rarely wears a tie to work, and for a recent interview wore a purple sweat shirt over a cotton polo shirt with the New Yorker insignia. “I saw him in Paris wearing this sweater with a hole in the sleeve that made him look like an out-of-work messenger,” said Peter Diamandis, a former Newhouse employee and head of the Diamandis Communications magazine chain. “He’s not awed by wealth.”

In the interview, Newhouse spoke softly, sometimes nearly inaudibly, and paused at length.

When he has a question for his lieutenants at Conde Nast, Newhouse, who is 62, writes it out on a scrap of legal paper and dispatches it to have an answer written below and returned. Sometimes the notes swirl down in a storm, an event insiders call “the yellow rain.”

Newhouse’s publishing operations are highly decentralized. Because it’s privately held, Advance doesn’t have to disclose financial details and can absorb losses on new magazines or overhauls for years without having to worry about restive shareholders.

The company doesn’t hedge its bets with lengthy market research. Typically, Si Newhouse will consult a small number of senior executives such as Alexander Liberman, Conde Nast’s editorial director and longtime confidant, and then act.

In a tax case that the Internal Revenue Service has brought against the family over the tax bill on the estate of Samuel I. Newhouse Sr., Si Newhouse was cross-examined on just how the family makes key decisions. It was difficult to explain, he said, frustrated: “It’s a little bit like love.”

How effective has this management style been? Admirers contend that Si Newhouse has shown that he has few peers in revitalizing old publishing properties. “He’s an expert at polishing and restoring old jewels,” said John Mack Carter, director of magazine development at Hearst Corp.

Others claim that his frequent and messy dismissals show a lack of skill with people, contending that Advance’s management apparatus has begun to creak under the strain of its size.

Some of the critics believe Random House is now facing problems that demonstrate the risks in moving too fast. The difficulty, they assert, was the company’s acquisition of two British publishing houses and Crown Publishing Group, a huge marketer and publisher.

The British companies weren’t complementary and, unbeknownst to the buyers, Crown was losing surprising sums, said an executive close to Random House. “They didn’t do their ‘due diligence’ diligently,” he said, speculating that Crown’s ills have helped dropped earnings of the overall book group to a meager 2% to 3% of revenue, from a typical 8% to 10%.

When Bernstein couldn’t correct the problems, the executive said, “Si figured it was time for a change.” Bernstein’s replacement, Alberto Vitale, earned a reputation as a skilled financial manager and cost cutter during his last job as chief executive of Bantam Doubleday Dell.

Newhouse wouldn’t comment when asked whether earnings problems led to Bernstein’s departure. “We don’t have to talk about earnings and I’m not very interested in other peoples’ speculation,” Newhouse said.

Another jolt came last year when Newhouse overhauled Vogue, which is by far the most valuable fashion magazine, with ad revenue of a whopping $88 million last year. Apparently shocked by the success of Elle magazine and other competitors, Newhouse decided Vogue needed a fresher, younger look.

He installed Anna Wintour, the British-born editor who had led a faltering attempt to revitalize HG, Conde Nast’s home decor magazine once known as House & Garden.

Some predicted disaster when ousted editor Grace Mirabella started her own magazine, with her own name, and aimed at the over-40 woman Vogue seemed to be neglecting. On Seventh Avenue, the fashion advertisers who depend on Vogue seemed unsettled by the changes.

But evidently they have adjusted, for Vogue’s ad revenue is up 17% for the first nine months of the year, after a 10% year-to-year rise in 1988. Vogue “is back on track,” acknowledged competitor Diamandis, whose company owns Elle.

Newhouse is unquestionably on track with Vanity Fair, the namesake of the celebrated society magazine of the 1930s.

Announced in 1980, the magazine had gone through two editors, two publishers and a series of face lifts by early 1984. The thoughts and life styles of intellectuals were featured in one incarnation; another dwelt on the jet set’s Manhattan party-going. (“It was the daily journal of Eurotrash,” said New Yorker writer Calvin Trillin.)

The magazine’s fortunes began to change in April, 1984, when the current editor, British-born Tina Brown, began to give Vanity Fair a clear focus, emphasizing show business personalities along with articles on weightier subjects. Ad revenue has increased an average of 60% a year since 1984.

If the company doesn’t have an elaborately plotted strategy, said Vanity Fair Publisher Johnston, “there is a vision. It’s Si’s vision.”

The most publicized upheaval in Newhouse’s empire came at the New Yorker, the admired literary weekly he purchased in 1985 for $200 million.

When Newhouse fired Editor William Shawn, 154 staff members signed a letter of protest that asked Newhouse’s chosen successor, Robert Gottlieb, not to take the job.

Both Newhouse and his father had coveted the magazine for years, but it may have proved a more difficult investment than he expected.

While circulation is up 25% from 1985 and advertising revenue has advanced about 7% in the first nine months of this year, many in the industry believe it is not making money and that more change is inevitable.

Many expect Newhouse will be forced to order major editorial changes to attract enough younger readers to guarantee the magazine’s future.

Some believe that, at the very least, Newhouse will have to add more pictures and more stories tailored to the impatient readers of the video age; others predict that only by “softening” the magazine--perhaps with Vanity Fair-style glitz--will Newhouse be able to give the New Yorker the needed boost.

New Yorker President Steven Florio insisted that the magazine is already on the right track, but he acknowledged the difficulty of running an institution that is so closely watched.

“It’s sort of an uncomfortable fishbowl existence,” he said. “If Bob (Gottlieb) makes changes, some people scream, ‘They’re changing it!’ If he doesn’t do anything, some people scream, ‘They’re not changing it enough!’ ”

Is Newhouse now satisfied with the New Yorker’s progress? “The concept of complete satisfaction is like the concept of truth,” Newhouse said. “You can move toward it, but you never entirely get there.”

But if rapid change is the norm, some of his lieutenants say they understand the ground rules.

“If my figures were down for a year, I understand he’d be lunching other editors,” said Vanity Fair’s Brown. “That’s the way the game is played.”

The lieutenants who do have Newhouse’s confidence are well rewarded. Top editors at Conde Nast are sometimes given automobiles and clothing allowances in addition to salaries that are among the best in the industry.

“If there’s a morale problem here, it hasn’t made it hard for me to find people,” Newhouse said.

In addition to his role at the book and magazine businesses, Newhouse has other company duties, including attending to the IRS suit that may pose the the biggest single threat to the family fortune.

The case revolves around the value of the 1,000 shares of common stock that S. I. Sr. bequeathed to his sons when he died.

The family has contended that the shares didn’t represent the full worth of the company, since other family members, who held preferred shares, got an equal say in the running of the company.

The IRS has maintained that since the bequest included the sole voting shares, they represented control, and the full estate should be taxed.

The agency has scaled back its original demand but still wants $609 million plus interest from the family.

A tax court judge may rule on the case early next year, though some observers still expect a settlement in the interim.

There are now about 20 Newhouses in some role at the company, including 10 in management positions.

Among them is Steven Newhouse, who is publisher of the Jersey Journal daily newspaper and was rumored to be in the running for the Random House job.

Si Newhouse said the family hasn’t decided who will succeed him when he retires and denied that there’s any competition between members of the next generation.

“The transition will be smooth,” he predicted.

THE NEWHOUSE MEDIA EMPIRE

Newspapers: 28 dailies, primarily in the Midwest and East, with total circulation of 3.4 million. Largest ones include the Cleveland Plain Dealer, the St. Louis Post-Dispatch and Newark (N.J.) Star Ledger.

Cable TV: Operations in Syracuse, N.Y.; Paramus, N.J., and Atlanta. Subscribers total 1.15 million.

Magazines: 15 publications with total circulation of more than 43 million, including Parade, with weekly circulation of 32 million. Other magazines include the New Yorker, Vogue, House & Garden, Vanity Fair, Conde Nast Traveler.

Books: 15 publishing houses, including Alfred A. Knopf, Random House and Fodor’s Travel Guides.

Source: Audit Bureau of Circulations, Paul Kagan Associates, Gale Directory of Publications, Barron’s

ADVANCE PUBLICATIONS AT A GLANCE

MAGAZINES

Publication Frequency Paid Circulation New Yorker Weekly 564,892 Parade Weekly 32,818,000 Vogue Monthly 1,281,597 Mademoiselle Monthly 1,297,938 Glamour Monthly 2,310,970 Vanity Fair Monthly 417,904 House & Garden Monthly 572,544 Bride’s Bimonthly 371,019 GQ Monthly 662,801 Gourmet Monthly 817,782 Self Monthly 1,124,129 Woman Seven times a year 486,726 Conde Nast Traveler Monthly 853,490

Source: Gale Directory of Publications, 1989 BOOK PUBLISHING Random House Alfred A. Knopf Crown Publishing Pantheon Books Schocken Books Times Books Villard Books Vintage Books Clarkson N. Potter Inc. Harmony Books Reference Books Fodor’s Travel Guides Ballantine/Del Rey/Fawcett/Ivy Group Century Hutchinson Random House London DAILY NEWSPAPERS

Newspaper Circulation (as of 9/30/89, preliminary) Portland Oregonian (M) 310,446 (S) 413,318 St. Louis Post-Dispatch (M) 376,888 (S) 557,941 Huntsville (Ala.) Times-News (C) 73,506 (S) 77,124 Birmingham (Ala.) News/Post (C) 232,079 (S) 206,297 Herald Mobile (Ala.) Press/Register (C) 97,922 (S) 106,523 Pascagoula (Miss.) Press- (E) 22,392 (S) 23,614 Register New Orleans Times-Picayune (M) 276,195 (S) 328,139 Springfield (Mass.) Union (M,E) 111,948 (S) 157,668 News/Republican (E) 75,422 (S) 87,944 Staten Island (N.Y.) Advance Jersey City Journal (E) 53,928 Newark Star-Ledger (M) 463,738 (S) 674,968 Trenton (N.J.) Times (M) 77,014 (S) 90,725 Syracuse (N.Y.) Herald- (C) 177,030 (S) 230,744 Journal/American/Post-Standard Flint (Mich.) Journal (E) 107,748 (S) 122,624 Bay City (Mich.) Times (E) 39,867 (S) 50,220 Saginaw (Mich.) News (E) 56,825 (S) 65,286 Ann Arbor (Mich.) News (E) 48,453 (S) 59,739 Jackson (Mich.) Citizen (E) 37,809 (S) 43,115 Patriot Muskegon (Mich.) Chronicle (E) 47,544 (S) 52,527 Grand Rapids (Mich.) Press (E) 143,101 (S) 188,472 Kalamazoo (Mich.) Gazette (E) 63,833 (S) 80,508 Cleveland (Ohio) Plain Dealer (M) 436,910 (S) 562,585 Harrisburg (Pa.) Patriot-News (C) 105,350 (S) 168,723

M - Morning; E- Evening; C - Combined daily circulation; S - Sunday

Source: Audit Bureau of Circulations FAS-FAX Report

NEWHOUSE CABLE BROADCASTING

Subscribers Penetration Headquarters (as of 12/31/88) (%) NewChannels Syracuse, N.Y. 345,605 81.3 MetroVision Atlanta 393,590 58.9 Vision Cable Paramus, N.J. 410,515 65.2

Source: Paul Kagan Associates, Inc.